According to Torto Wheaton figures, based on statistics culled by the Boston-based firm's parent company, CB Richard Ellis, industrial net absorption plunged in each of the past four quarters, with the national market shedding almost 48 million square feet in Q4 alone. As a result, the TWR Warehouse Rent Index declined for the first time since '05, falling nearly 4% on an annualized basis from $6.09 a square foot to $6.03 a square foot. A market-by-market analysis shows that 40 of the 58 markets tracked experienced a decline in rents.

As Suran points out, the 2001 recession was largely the result of a high-tech boom and bust spurred by overzealous and premature efforts to incorporate the Internet into business. The R&D sector was particularly hard hit, and R&D facilities experienced larger increases in availability compared to manufacturing and warehouse/distribution facilities. Markets with high concentrations of high-tech businesses such as San Jose, CA; San Francisco and Austin, TX; were among the worst performers in terms of rent decline.

By contrast, she says, the current recession, with its genesis in a national and international financial crisis, has been slow to affect high-tech markets. Many of the markets that performed poorly in '01 are among the top performers in the current recession. For example, San Jose, Dallas-Fort Worth and Columbus, OH all experienced rent declines in the previous downturn but made sizable gains last year despite the declining economy.

This time around, she continues, the retail sector has been responsible for the drop in demand, and the biggest jump in availability (190 basis points) has been among warehouse/distribution rather than R&D facilities. Consequently, many markets that enjoyed positive rent growth in '01 saw rents plummet in '08. The impetus for current declines, she explains, is the drop in demand for warehouse and distribution space due to consumer pullbacks. In the years preceding the current crisis, consumer spending surged as Americans pulled equity of their homes to underwrite new purchases. This resulted in a surge in demand for warehouse space, especially around West Coast ports that received vast shipments of goods manufactured in Asia.

At the same time, Suran adds, rents rose in markets where industrial developers had to compete with higher-paying residential builders for available land. As she notes, three years ago, Miami, Tampa, Orlando, and Las Vegas were among the top 10 markets for industrial rent growth. Since the collapse of the home-building industry, "[I]t's pretty much been a race to the bottom for these same markets," she comments.

Suran notes that while the growth of retail inventories began to fall sharply well before the current recession began in December '07, wholesale and manufacturing inventories did not begin to diminish till this past October as the global economy plunged into a deep—and most likely prolonged—manufacturing slowdown.

"We can definitely expect manufacturing and wholesale inventories to drop in the coming months, but you can blame the retail sector for the inventory slowdown of the past year," she says. "So don't assume this recession will affect the demand for industrial real estate like it did in 2001. Pay attention to what drives the differences in industrial demand on a market-by-market basis."

On the positive side, Suran remarks, because many markets are now more fully integrated into global supply chains, they will hold upside potential when the recovery takes hold. In some cases, supply-chain ties may also act as a buffer during the downturn.

"We are still expecting further declines in rent for most markets, but some will fare better than others," she adds. "Inland markets that were relatively unscathed by the housing crisis should outperform the national average. Export-dependent markets will most likely continue to outperform many of the larger import-dependent markets, despite the latest trade data showing worrisome declines in export activity."

Instant Insights /

Economist: Current Crisis Differs from Dot-Com Bust

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